16 September 2025: In the ‘60s, Manufacturing accounted for 30% of GDP

The decline of UK manufacturing from its peak in the 1960s/early 1970s is a classic case of deindustrialisation, with multiple overlapping causes, both domestic and global.

Countries like Japan, South Korea, and later Taiwan produced manufactured goods (cars, electronics, steel, textiles) more cheaply and with higher quality than many UK firms. As trade barriers fell, industries that relied on low-cost labour (e.g., textiles, shipbuilding, steel) shifted to emerging economies.

Many British firms failed to modernise machinery, production techniques, and management practices. Meanwhile, compared with Germany, Japan, or the US, UK factories often had lower efficiency and more frequent industrial disputes. These issues came to a head in the 1970s, which saw widespread strikes, rigid demarcation lines within unions, and adversarial industrial relations that hindered innovation.

The oil shocks of 1973 and 1979 significantly impacted energy-intensive British industries, leading to substantial cost increases. The Thatcher government prioritised controlling inflation and reducing the power of trade unions. High interest rates and a strong pound in the early 1980s led to factory closures in the steel, coal, and heavy manufacturing sectors.

As manufacturing shrank, services, finance, business services, retail, and creative industries expanded. UK governments from the 1980s onwards tended to emphasise deregulated finance and services over industrial policy.

Manufacturing has become a less critical contributor to GDP, resulting in its contribution of less than 10% today. Although Governments since the turn of the century have accepted this seismic change, with Britain being a relatively small island with a population similar to France, but with less than half the land mass, the Country has struggled for direction.

Now, the country faces an uphill struggle to retain, let alone regain, its place in the world, which has faded considerably since the end of the Second World War.

How MPs must hanker after the “you’ve never had it so good” years of Harold Macmillan as the present Government struggles to create employment and growth from a far smaller economy.

Chancellor Rachel Reeves has been warned that urgent action is needed to prevent the UK from sliding into a financial crisis.

With economic growth flat-lining and productivity at just a third of pre‑2008 levels, mounting borrowing and a £40billion shortfall in public finances are heightening concerns over the country’s economic stability.

Economists have issued stark warnings that Britain could face a financial crisis unless the Government takes swift action to restructure the economy.

The alert comes as concerns mount over the nation's economic trajectory and investor sentiment.

While a lot of these threats are considered to be little more than right-wing propaganda, the facts are beginning to favour the reality of the situation. Britain’s public sector borrowing has increased since the present Government was elected, while issues like NHS waiting lists and the arrival of undocumented migrants have deflected its gaze elsewhere.

The latest employment data, published this morning, was in line with market expectations, and the headline rate remained unchanged at 4.47% and average earnings are still well above the inflation rate.

Yesterday, Sterling reached its highest level in more than a month as comparative interest rates were expected to favour the UK over the US. It peaked at 1.3620 and closed at 1.3598.

The FOMC will likely vote to lower interest rates for the first time this year, as its meeting begins in Washington later today and concludes with Jerome Powell announcing the decision tomorrow evening, UK time.

Despite the intense pressure that has been exerted on the Fed to return to cutting interest rates sooner, Powell and his colleagues have concentrated on lowering inflation as the balance of risks in the economy has begun to shift from price increases to economic activity.

Job creation is considered the most conspicuous measure of economic health, so the revelation that, according to revised figures, close to one million jobs have been lost so far this year has created a condition close to panic. Nevertheless, while some economists and senior Wall Street figures have been predicting a recession for a considerable time, the number of jobs created on a month-by-month basis remains positive.

Again, with employment data being headline news across the entire nation, the optics of a fall into negative territory would sound alarm bells.

With market experts believing that negative job growth will be the catalyst which sees the Fed speed up its cycle of rate cuts, the final data for this quarter, due on October 3rd, will be critical and may lead to tomorrow’s cut being the first in a cycle of three this year, with more to follow in early 2026.

While the makeup of the FOMC is still a matter of great interest to President Trump, a court in Delaware dealt a blow to his plans to replace Fed Governor Lisa Cook. A US appeals court declined yesterday to allow President Donald Trump to fire Federal Reserve Governor Lisa Cook, the first time a president has pursued such action since the Central Bank's founding in 1913, in the latest step in a legal battle that threatens the Fed's longstanding independence.

The decision by the US Court of Appeals for the District of Columbia Circuit means that the administration only has hours to appeal to the US Supreme Court, if it hopes to block Cook from attending the Fed's policy meeting on Tuesday and Wednesday, where it is expected to cut US interest rates to shore up a cooling labour market.

The DC Circuit denied the US Justice Department's request to put on hold a judge's order temporarily blocking the Republican President from removing Cook, an appointee of Democratic former President Joe Biden.

The decision was 2-1, with circuit judges Bradley Garcia and J Michelle Childs in the majority, both of whom were appointed by Biden. Circuit judge Gregory Katsas, a Trump appointee, dissented. This continues to illustrate the political interference that is coming from the White House, as the President continues to rail against his inability to have any influence over monetary policy.

The dollar index fell to a low of 97.27 as the market believes that further cuts in the fourth quarter will follow a rate cut tomorrow. It eventually closed at 97.36.

The eurozone's trade balance edged up slightly in July, driven mainly by a drop in imports, while exports also declined modestly. Excluding the energy crisis period, this marks one of the smallest trade surpluses in the past decade.

The eurozone economy experienced a stellar first quarter, driven by the US front-loading of European goods. But five months have passed since Trump’s 'Liberation Day', and eurozone exports are settling in at a slow pace at the moment. On a seasonally adjusted basis, nominal exports to the rest of the world fell by -0.1% in July compared to June, with imports falling slightly more at -0.8%. The trade balance ticked up from €3.7bn to €5.3bn, which remains well below levels seen in recent years. It therefore looks like weak net exports will dampen economic growth in the third quarter.

Exports to the US were more or less stable compared to June on a seasonally adjusted basis, but again at a level below the 2024 average. Americans are importing less than they did before tariff barriers were increased. However, the jury is still out about how much of this is due to front-loaded inventory versus reduced demand caused by the tariffs themselves. As a result, the US trade deficit with the eurozone narrowed from around €15bn per month in 2024 to €9bn in July 2025.

Germany has been actively working to reduce its reliance on Russian energy, especially in light of geopolitical tensions and the growing need for energy security. The country has implemented several strategies to achieve this goal. It has sought to diversify its energy imports by increasing purchases from other countries, including Norway, the Netherlands, and liquefied natural gas (LNG) from the United States and Qatar.

The country has been a leader in renewable energy, particularly wind and solar power. The government has accelerated its transition to renewables as part of its "Energiewende" (energy transition) policy, aiming to reduce dependence on fossil fuels.

While these efforts are significant, the transition is complex and may take time. Germany's energy landscape is deeply interconnected, and complete independence from Russian energy will require sustained commitment and investment in alternative sources and technologies. The situation remains dynamic, influenced by both domestic policies and international developments.

The whole sector received a blow yesterday as the country will phase out fixed-price subsidies for new renewable power projects and pivot to market-based support, aligning with European Union guidance while seeking to keep its climate goals on track and energy costs in check, the economy ministry said.

Unveiling an energy transition monitoring study and a 10-point plan, Economy Minister Katherina Reiche called for "pragmatism and realism" to balance competitiveness with climate neutrality.

With climate targets tight, grids strained, and industry clamouring for cheaper power, the study serves as a reference point for Berlin to recalibrate its renewables targets, power market rules, and investment.

Critics say fixed feed-in tariffs, introduced two decades ago to nurture renewables, are now too costly, noting 16 billion euros is budgeted for them in 2025, and argue the sector is mature enough to face market forces.

Alternatives under consideration include contracts for difference - where the generator is paid if market prices fall below an agreed level but must refund the difference if they rise above - or mechanisms to claw back revenues above certain thresholds.

The euro continues to gain ground with traders continuing to take short-term positions as they fear that this run of strength will end abruptly, even though the catalyst for such a fall remains elusive.

It climbed to a high of 1.1774 and closed at 1.1761. There are still plenty of hurdles to be negotiated before 1.20 becomes a target, but right now, no one wants to stand in the way of a freight train.

Have a great day!